Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retail Store Expansion 1 $131,000 $110,000 2 108,000 129,000 3 93,000 88,000 4 84,000 62,000 26,000 53,000 Total $442,000 $442,000 Each project requires an investment of $239,000. A rate of 15% has been selected for the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8. 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162

Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retail Store Expansion 1 $131,000 $110,000 2 108,000 129,000 3 93,000 88,000 4 84,000 62,000 26,000 53,000 Total $442,000 $442,000 Each project requires an investment of $239,000. A rate of 15% has been selected for the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8. 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retail Store Expansion $134,000 110,000 95,000 86,000 26,000 $451,000 1 2 3 4 Сл Total Each project requires an investment of $244,000. A rate of 10% has been selected for the net present value analysis. Present Value of $1 at Compound Interest 6% 10% 0.909 0.826 Year 1 2 3 4 5 6 7 8 9 10 Required: 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 $112,000 132,000 90,000 63,000 54,000 $451,000 0.361 0.322 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162
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Problem. Assume the following cash flow for 2 projects. Assuming that the cash flows are occurring at the end of the year. Find the payback period for both these projects. Year Project 1 Project 2 -1000 600 400 -1000 100 400 1 2 and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by tronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is stricty prohibitec 3 200 200 600 4 600 5 100 700 Solution: